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In this project we will examine a home loan or mortgage. Assume that you have found a home
for sale and have agreed to a purchase price of $201,000.
Down Payment: You are going to make a 10% down payment on the house. Determine the
amount of your down payment and the balance to finance.
Down Payment $20,100
( 12 )
r
PMT =
r 12Y
1 +(1
12
PMT=(108,900)*(0.04975/12)/1-(1+0.04975/12)^-12(30)
PMT=968.35
Note that this monthly payment covers only the interest and the principal on the loan. It does not
cover any insurance or taxes on the property.
Amortization Schedule: In order to summarize all the information regarding the amortization of a
loan, construct a schedule that keeps track of the payment number, the principal paid, the interest,
and the unpaid balance. A spreadsheet program is an excellent tool to develop an amortization
schedule. We can use a free amortization spreadsheet on the web.
The web address is: http://www.bretwhissel.net/amortization/amortize.html. Enter the amount
of the loan, i.e. the selling price minus the down payment, the interest rate, and the appropriate
number of years. Check the box to show the schedule.
Amortization Schedule monthly payment for a 30 year mortgage $968.35
(Note: if this is more than 2 or 3 cents different from your calculation, check your numbers!)
Total interest paid over 30 years $167,704.53
Number of first payment when more of payment goes toward principal than interest 194
As already mentioned, these payments are for principal and interest only. You will also have
monthly payments for home insurance and property taxes. In addition, it is helpful to have
money left over for those little luxuries like electricity, running water, and food. As a wise home
owner, you decide that your monthly principal and interest payment should not exceed 35% of
your monthly take-home pay. What minimum monthly take-home pay should you have in order
to meet this goal? Show your work for making this calculation.
Pr=p
(monthly take home)(.35)=968.35
968.35/0.35=$2766.71
Minimum monthly take home pay = $2,766.71
It is also important to note that your net or take-home pay (after taxes) is less than your gross pay
(before taxes). Assuming that your net pay is 73% of your gross pay, what minimum gross
annual salary will you need to make to have the monthly net salary stated above? Show your
work for making this calculation.
(gross pay)(.73)=2766.71
2766.71/0.73= 3790.01
3790.01*12=$45,480.12
e(0.04*10)= $299,856.76
A=201,000
Do you gain or lose money over the 10 years? How much? Show your amounts and summarize
your results:
Over ten years you would gain a total of 16, 518.19. You would pay 136,302.11 which would
include your down payment and total amount paid after those 10 years. If you add that to the
remaining amount it makes the total cost 283,338.57. The difference would be 16, 518.19 gained.
Suppose you paid an additional $100 towards the principal each month. How long would it take
to pay off the loan with this additional payment and how will this affect the total amount of
interest paid on the loan? [If you are making extra payments towards the principal, include it in
the monthly payment and leave the number of payments box blank.]
Length of time to pay off loan with additional payments of $100 per month 163 months or 13.58
years
Total interest paid over the life of the loan with additional $100 monthly payments $64,713.29
Total amount paid with additional $100 monthly payments $245,613.29
Compare this total amount paid to the total amount paid without extra monthly payments. How
much more or less would you spend if you made the extra principal payments?
The difference would be $7,412.71 saved by paying an extra $100 dollars each month